California Dealin’

Jeffrey Barbakow remembers how confused New York investment bankers were in the early 1970s when he told them about plans to turn a fast-growing Southern California enterprise called Taco Bell into a public company.

“What’s a Taaa-Ko Bell?” said one New Yorker, mispronouncing the first name of the fast-food chain. “Don’t be stupid,” said another. “It’s a Southern California utility.”

Not that long ago it was hard to interest Wall Street in any Southern California company that wasn’t aerospace- or entertainment-related, remembers Barbakow, then an investment banker for Merrill Lynch in Los Angeles and now chief executive of a major health-care company, Tenet Healthcare.

These days, however, those who work the Southern California off-ramps of Wall Street are busier than any time since the late 1980s, directing financings both public and private, both equity and debt, for fast-growing firms here.

“There are more companies in Southern California right now who will either become Fortune 500 companies or be bought by Fortune 500 companies than any other geographic region in the United States,” said David Dennis, a managing director in Century City with Donaldson Lufkin & Jenrette, the lead underwriter of equity deals in California so far this year, according to data from CommScan, a New York data service.

*

Although recent stock market nose dives have hampered appetites for some new issues this year, bankers are still pursuing big business, with merger and acquisition activity topping the list.

The recent spate of multibillion-dollar hostile takeovers here, such as H.F. Ahmanson’s $6-billion-plus bid for Great Western and Hilton Hotels’ $6.5-billion bid for ITT, has bankers juggling more deals than at any time this decade.

Other local deals on the table include the possible sale of $53-billion money manager Trust Co. of the West and a sale of the Los Angeles Dodgers. Other bankers are turning entrepreneurial Southern California firms such as Guitar Center and the 99 Cents Only chain into public companies.

And Wall Street is paying a lot of attention. Almost every firm in Los Angeles is currently hiring.

But make no mistake: Los Angeles’ investment community doesn’t approach Wall Street’s size or cachet. It doesn’t even have the financial muscle of San Francisco. No major underwriter such as a Hambrecht & Quist or a Robertson Stephens is based here.

In the last five years, the Los Angeles brokerage industry grew 7%, compared with 29% among brokerages nationally, according to the Milken Institute in Santa Monica, founded by former junk bond king Michael Milken, who served two years in prison for securities fraud.

The investment banking community in Los Angeles resembles the mix of corporations and small firms that make up Southern California. The finance community here is a combination of bankers who staff the outposts of major Wall Street firms and much smaller entrepreneurial shops.

Although it is hard to say exactly who the biggest deal makers of Southern California are, because many firms are private and do not release information on revenue or deals, here are some of the major players.

The Top Tier

The industry powerhouse is Wall Street’s Donaldson Lufkin & Jenrette, which just added a third floor to its offices at Fox Plaza in Century City. In 1990, DLJ hired a group of bankers from Drexel Burnham Lambert, most of whom are still with the firm.

They have helped the firm capture the largest share (18.1%) of the national corporate junk bond market. The firm has also increased its share of the equity market, jumping to a No. 3 ranking last year from No. 9 in 1992.

One of the busiest firms here is Goldman Sachs of New York, which specializes in representing takeover targets. Bankers in Los Angeles are advising Great Western in its efforts to thwart a takeover by Ahmanson, the parent of Home Savings. It also advises such major downtown corporations as Atlantic Richfield and Unocal.

“I can be over there in five minutes if they want to discuss something,” said Peter Barker, who runs the Bunker Hill office.

Although Los Angeles has lost such major corporate headquarters as First Interstate and Thrifty Drugstores, Barker believes the number of fast-growing firms here makes the area a lucrative place for bankers to be.

“For every one of these major companies that has left Los Angeles, a new one has come along. You can’t afford not to be in this market,” said Barker, who, like many of the investment bankers in Los Angeles, grew up in the area.

Besides being busy with Great Western, Goldman is advising Los Angeles-based Trust Co. of the West in its search for a buyer and consulting with the owners of the Los Angeles Dodgers in their search for new investors or a possible sale.

*

There are about 18 investment bankers in Goldman’s Los Angeles office and 22 in San Francisco, where the firm focuses on high-tech companies.

Suzanne Nora Johnson at Goldman, one of a handful of female managing directors in the investment banking industry, heads Goldman’s entire health-care practice from Los Angeles. She has a home here and keeps a hotel room in New York.

“Basically, I live out of a suitcase,” she said. “So much of the health-care business is on the West Coast. There is a center of excellence here and enough business to justify me being here.”

Johnson helped engineer the sale of Salick Health Care to London-based drug maker Zeneca Group and has worked on other high-profile deals here.

“We are very, very busy,” she said. “There is so much industry consolidation.”

In Westwood, Merrill Lynch is moving into larger offices in August and has plans to add to the 30 bankers in its investment banking group, said Harry T. McMahon, managing director with Merrill Lynch who co-heads the Los Angeles office.

“We feel very bullish about the corporate activity in the region. This is one of our most profitable regional operations, and we expect that to continue,” McMahon said.

In the last week, the firm was lead banker on financings for such major Southern California firms as Amgen, Times Mirror, Wellpoint Health Networks, Tenet Healthcare and Hilton, said James F. Flaherty, a managing director in Merrill’s Los Angeles office.

Other Wall Street firms are also busy here. J.P. Morgan just opened its new Los Angeles office downtown last year, and it now has nearly 10 bankers and an eye on entertainment-related business.

Prudential Securities, with seven bankers in West Los Angeles, expects to announce four new hires this week, said Michael Burns, a managing director. He said the firm plans to expand into the high-yield area.

In January, the firm completed a $275-million public offering for Kilroy Realty, a Southern California real estate investment trust that owns property near the Los Angeles airport.

Regional Power One of the more successful Los Angeles-based investment banks is Jefferies.

Company founder Boyd Jefferies built the firm into a powerful trader of large blocks of stocks between investors, but in 1987 Jefferies pleaded guilty to two counts of securities fraud for illegal “parking of stock” for admitted insider trader Ivan F. Boesky.

Jefferies moved to Colorado and is no longer involved with the firm, which has thrived in the last six years under Frank Baxter, a native Californian born in Baxter’s Stop, a sagebrush dot of a town founded by his great-grandfather between Sacramento and Reno.

Recently, the firm has attempted to increase the size of its business raising capital for companies. Last year, the firm managed 48 debt and equity deals, totaling more than $4 billion, the most in its history.

“It’s quite a shift for a firm that has spent the past 35 years finding ways to help institutions to trade better between themselves,” said Baxter, who holds a 9% stake in the publicly traded firm. “We’re trying to apply those same principles between corporations and high-net-worth individuals.”

With 110 corporate bankers, the publicly traded firm is focused on small to mid-sized companies. The firm reported record earnings for 1996, up 53% from the previous year, and 29% growth in revenue. Although it has grown recently, its total revenue of $540 million in 1996 is still small compared with those of giants like Merrill Lynch, which reported more than $1 billion in revenue last year.

Despite its successes, Jefferies still faces major obstacles expanding its image as a top-notch trading house.

It will take more time and more successful deals to cement its new image, some say. Meanwhile, the firm has several large deals on tap, recently helping to raise $1 billion for its neighbor Trust Co. of the West.

Given the current climate for mega-mergers in Wall Street’s investment banking community, smaller firms like Jefferies must find a strong niche or a large partner to survive, analysts say.

Already this year, such giants as Morgan Stanley and Dean Witter announced plans to merge, and last week Bankers Trust announced it was purchasing the old-line Baltimore brokerage firm Alex. Brown & Sons.

Baxter acknowledges that the entire investment banking industry is undergoing a transformation, but he said Jefferies is not in any merger discussions, though it is always looking for partners on certain types of business.

“We don’t see any great advantage to size,” he said.

The Old-Timers Crowell Weedon in downtown Los Angeles, celebrating 65 years of business this year, is known for its loyal high-net-worth clients, many third- or fourth-generation Californians.

Crowell, a privately held partnership, with more than 400 employees and more than $100 million in assets, avoids risky ventures and operates in a world of tradition and restraint.

“Wall Street always seems to be trying to find something to sell the public, but our job is to preserve assets and make them grow,” said Donald W. Crowell, who now runs the firm founded by his father, Warren Crowell, and George Weedon in 1932.

Crowell manages the firm with the same traditions and conservative standards his father and Weedon established, avoiding more risky--albeit possibly more lucrative--deals. That’s why, he said, his family firm has survived by staying small while other major competitors in Los Angeles have merged or gone out of business.

*

When the company began, it was among a cadre of nearly 20 regional investment banking firms thriving here, mostly along Spring Street in downtown Los Angeles, where the Pacific Stock Exchange was based. Spring Street, now down-at-the-heels, had an air then of Wall Street West.

Most of those firms are gone now, having folded, merged or been bought out in recent years. The stock exchange moved to larger headquarters in a modern building separated from the downtown core by a freeway.

Crowell survived by sticking to what it does best: focusing on small companies and its clients.

“We could take someone public every week. We get so many calls from people who say, ‘I have $2 million in sales and I want to go public.’ Most of the time they aren’t ready,” said Hal Harrigian, director of corporate finance. “We don’t want any surprises, and our clients don’t want any surprises.”

Last year Crowell helped complete successful public offerings for Keystone Automotive Industries, a Pomona distributor of automotive collision replacement parts, and the 99 Cents Only stores.

Another local firm was started by Edward W. Wedbush in 1955. That company has become Wedbush Morgan, a downtown Los Angeles firm with 445 workers and 13 offices in eight states.

*

Known for its strong broker network, the firm has tried in recent years to gain credibility in the investment banking arena. Wedbush completed five public offerings for companies in 1996 and has plans to complete seven this year. The firm is also moving into the municipal bond arena, and was recently selected to join a pool of firms that underwrite the state of California’s bonds.

Wedbush, now 64, says he has no plans to retire. Instead, Wedbush says he’s now ready to turn his firm into a regional powerhouse, a one-stop shop for investment banking.

“We give senior-level attention to deals,” said Wedbush. “Even in a busy market, clients can talk directly to me. We’re here to answer the phone when it rings.”

One of the more entrepreneurial local firms is run by Lloyd Greif, 41, an aggressive promoter who dubs his firm the “entrepreneurs’ investment bank.”

Greif, a former head of investment banking at Sutro, started his firm in 1992. It has grown to nine bankers, all focusing on mid-sized companies ranging from $25 million to $500 million in revenue. His largest deal last year was the $250-million sale of Rose Hills Mortuary & Memorial Park near Whittier.

Other small firms are busy in Southern California. Bruce Emmeluth heads the corporate finance practice of San Francisco-based Van Kasper out of Los Angeles. An area native, he sees growing business here, and the firm is hiring.In Orange County, Irvine-based Cruttenden Roth is raising capital for growing companies, and Seidler in downtown L.A. is focusing on small and mid-sized firms.

The Venture Capitalists Besides investment banking, another area of capital raising that is beginning to come back in Los Angeles is venture capital.

Foothill Capital, Enterprise Partners, Brentwood Venture Capital and Fredric Roberts & Associates in Santa Monica all help raise private equity and debt for Southern California companies.

Still, Los Angeles trails Northern California and even Boston’s Route 128 technology corridor as a venture capital hotbed. Some think that will soon change as its stronger businesses grow.

“Southern California is going to become famous for the entertainment technologies,” said Michael D. Donahue, a lawyer who is on the board of the Los Angeles Venture Assn., a trade group.

Barrington & Associates of Westwood was started by Jim Freedman 14 years ago to specialize in deals sized from $5 million to $300 million. These companies, he says, are overlooked by most bankers.

*

Freedman has completed several high-profile deals, including the sale of the Los Angeles Kings hockey team and of smaller firms throughout Southern California.

“These are companies started decades ago, and the founders are ready to sell. We’ve got a backlog of 25 companies right now we are working with,” he said.

Freedman says the firm, which is hiring, has survived the lean times of recent years and is enjoying a spike in business. The capital-raising business in Los Angeles is cyclical, he noted, and he has seen Wall Street firms come and go.

“The New York bankers come out here when times are good and staff up,” he said. “But as soon as there is a hiccup, they leave.”